## Facts

- Philip Rothman was injured in an automobile accident in 1971 and retained attorney Irving L. Madnick to sue Gloria and Ronald Fillette.
- In 1972, Madnick filed a trespass action in the Court of Common Pleas of Philadelphia County.
- In 1974, the Fillettes’ insurer, Liberty Mutual, negotiated with Madnick and agreed to settle for $7,000.
- Liberty Mutual received a release that appeared to bear Rothman’s signature and issued a $7,000 check payable jointly to “Philip Rothman and Irving L. Madnick.”
- The check was cashed after a purported endorsement by Rothman, and the case was marked “settled, discontinued and ended” on September 9, 1974.
- Rothman later asserted he never authorized the settlement, did not sign the release, and did not endorse the check; the lower courts accepted that Madnick forged Rothman’s signature and misappropriated the funds.
- In 1979, Rothman petitioned to strike the settlement/discontinuance and reinstate the action; the trial court granted relief, and the Superior Court affirmed.
- The Fillettes and Liberty Mutual were not implicated in the fraud and acted in good faith in completing the settlement.

## Issues

1. When a plaintiff’s attorney, without actual authority, fraudulently settles a case and steals the proceeds, should the resulting loss fall on the innocent client or on the innocent settling defendants and their insurer who relied on the settlement’s formal indicia?

## Decision

- The Pennsylvania Supreme Court reversed the order allowing the case to be reopened and dismissed Rothman’s petition to strike the settlement/discontinuance.
- The Court held that, as between two innocent sides, the client must bear the loss caused by the client’s attorney’s unauthorized settlement and theft when the opposing parties and insurer acted in good faith.
- The 1974 settlement and discontinuance remained effective, and the defendants were not required to litigate further or pay additional compensation.

## Legal Principles

- A settlement and discontinuance, once entered and relied upon in good faith, is treated as a final disposition comparable in effect to a judgment for the defendant.
- Courts will not use equitable relief to shift the loss from an attorney’s fraud from innocent settling defendants/insurers to the client when the defendants and insurer followed ordinary settlement safeguards (release, joint-payee check, discontinuance).
- In allocating loss between innocent parties, the risk of an attorney’s dishonest acts in concluding and collecting a settlement is borne by the client, who selected and entrusted the attorney and may seek remedies against the attorney rather than reopening the underlying tort action.

## Conclusion

The court enforced the settlement and discontinuance despite the plaintiff’s attorney’s forged signatures and theft, ruling that the plaintiff—not the blameless defendants and insurer—must absorb the loss and pursue any remedy against the wrongdoing attorney.


Rothman v. Fillette, 469 A.2d 543 (Pa. 1983)